How FX Trading Enables Better Forecasting for South African Retailers

On the shelves of most South African retail stores, the price is not only changing according to the local demand, but also according to the movement of global currencies. The cost of goods sold is directly relying on the exchange rate changes, be it a small-scale importer of fabrics or a large chain sourcing from Asia. These changes can pose a major problem to retailers who are attempting to strategize in advance. When the price of the rand cannot be predicted, it becomes harder to make accurate forecasts that could have an effect on prices, offers and the general profitability.

Retailers need to go beyond merely predicting what goods and commodities their customers will need in future by also calculating how much it will cost them to carry the same goods in the coming months. Timing is everything when it comes to seasonal goods, whose stakes are very high. A sudden loss in the strength of the rand prior to the arrival of a large shipment may lead to the occurrence of greater costs than expected thus reducing the profit margins. Many retailers have experienced firsthand the fact that currency risk is no longer an aspect to be overlooked. It has to be managed like any other business component.

The role of FX trading in the development of stronger forecasts by these businesses is starting to appear. Although most retailers do not trade currencies directly, they are beginning to collaborate with consultants/platforms or banks to provide foreign exchange facilities to do so. These tools will enable them to follow trends, determine possible dangers, and make more informed purchasing decisions. They are able to add accuracy to their stock and budgeting processes as they can anticipate future exchange rate movements or how some of the geopolitical events may affect the movement of cash amongst others.

Image Source: Pixabay

Retailers may already have very low margins and, therefore even minor upgrades in forecasting can take them very far. This is because with information on how much it will cost to land a given product into account managers can be assured that in a week or a month’s time they may place a higher order, secure a good deal or even undertake a promotion without the risk of incurring unexpected losses. It also assists them to match their pricing strategies to customer expectations, as opposed to the type of unstable pricing that destroys brand trust.

The more that the retail environment becomes data-driven, the more value there is in proper forecasting. Companies are combining FX insights with customer behaviour analytics, inventory turnover and supplier lead time data. The wider perspective enables more responsive choices, whether it is the question of changing the amounts of orders or alternating the sourcing procedures. The lessons of FX trading are added to a system that will allow retailers to better prepare instead of respond or react.

Mid-size retailers in most cases are at the forefront of moving towards smarter forecasting with an aim of expansion. Such businesses can be flexible enough to implement new strategies and acknowledge the usefulness of financial tools that larger companies have been utilizing over the past decades. In their case, FX awareness is not about speculation. It is all about protecting their bottom lines and making more business decisions.

The South African retail industry is an assorted and agile industry. A host of variables contribute to every decision regarding what to carry, when to order and at what price. The dollar is just one part of the picture, but it’s a part that impacts every product that is brought to the shelf. As more FX trading tools become available to retailers, and retailers are becoming increasingly able to predict their costs and manage uncertainty. This transition is making them more flexible, competitive, and ready to face the next wave that the market has to offer them.